Question
Cost-benefit analyses have been conducted of six proposed projects. None of these projects are mutually exclusive and the agency has a sufficient budget to fund
Cost-benefit analyses have been conducted of six proposed projects. None of these projects are mutually exclusive and the agency has a sufficient budget to fund those that will make society better off. The findings from the CBAs are summarized here in millions of dollars:
Net Social Benefits | Net Group I Benefits | Net Group II Benefits | |
Project A | $2 | $2 | $0 |
Project B | 6 | 8 | -2 |
Project C | 4 | 12 | -8 |
Project D | -1 | -3 | 2 |
Project E | -2 | -1 | -1 |
Project F | -2 | 4 | -6 |
Group I consists of households with annual incomes over $15,000, while Group II consists of households with annual incomes under $15,000.
a) According to the net benefit rule, which of these projects should be funded?
b) For which of the projects might distributional considerations be an issue?
c) Compute internal distributional weights for the six projects.
d) Recompute social net benefits for the six projects using a distributional weight of 1 for Group I and a distributional weight of 2 for Group II.
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